Not only is the article free of hysteria (having said this, the hysteria is made up for in some of the commentators rantings), it also generates some food for thought re volatility expansion. I particularly like how it discusses the compression of events into smaller time horizons.

Still, I have a beef with this, the part I have bolded:

But at the same time that bid-ask spread have decreased on average, volatility has sharply increased, as illustrated most clearly with the flash crash

Taken together, this evidence suggests something important. Far from solving the liquidity problem in situations of stress, HFT firms appear to have added to it. And far from mitigating market stress, HFT appears to have amplified it. HFT liquidity, evident in sharply lower peacetime bid-ask spreads, may be illusory. In wartime, it disappears.

What is it about the argument that liquidity disappears in times of market stress (in short, during market crashes)? A couple of points I would like to make:
1. This is not a new phenomenon. Bids* disappear during market crashes. It happens, and has always happened. If there were bids around, there wouldn’t be a crash, would there? Maybe its because I come from a trading background in instruments where liquidity evaporated quite regularly (the FX markets, especially in the period after the NY close) that I find those complaining about liquidity disappearing are trying to complain about a natural market phenomenon. It happens, we have to deal with it.
2. There seems to be an underlying assumption that HF traders have some sort of obligation to provide ongoing liquidity, at all times. Why? Are HF traders granted some sort of specialist (no, not a typo) privilege in the markets (no, they aren’t), or are they voluntary market participants who should be free, like we all are as voluntary market participants, to place bids and offers as we see fit? HF traders are not in the market to do anyone any favours, neither is any other trader. Want friend? Buy dog, etc.

There are other questionable points that need to be revealed for what they really are, but thats enough for now.

*Lets introduce some honesty into this argument. “Illusory liquidity” is often a euphemism for “lack of bids”. It is a term employed by those who are long and wrong and looking for anyone to blame but themselves for their poor market position.